TITLE: B-310454; B-310537, KAR Contracting, LLC, December 19, 2007
BNUMBER: B-310454; B-310537
DATE: December 19, 2007
***********************************************************
B-310454; B-310537, KAR Contracting, LLC, December 19, 2007

   Decision

   Matter of: KAR Contracting, LLC

   File: B-310454; B-310537

   Date: December 19, 2007

   Kenneth A. Reynolds, KAR Contracting, LLC; and Dwight J. Staples, Esq.,
   and Gail Henderson-Staples, Esq., Henderson, Henderson & Staples, for the
   protester.

   Phillipa L. Anderson, Esq., Kenneth MacKenzie, Esq., and Charlma Quarles,
   Esq., Department of Veterans Affairs, for the agency.

   Paul N. Wengert, Esq., and Ralph O. White, Esq., Office of the General
   Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Protests challenging an agency's decision that the protester is ineligible
   for the award of two construction projects are denied where the agency
   reasonably concluded that these awards would create the appearance of an
   impropriety because of the protester's founder's role in both projects
   while a government employee, including serving as the contracting
   officer's technical representative, and participating in the preparation
   of construction drawings.

   DECISION

   KAR Contracting, LLC protests the rejection of its bids under two
   solicitations to perform construction work at the Department of Veterans
   Affairs (VA) Medical Center in Huntington, West Virginia. One bid was
   submitted in response to invitation for bids (IFB) No. VA-249-07-IB-0085,
   for replacement of the roof on "Building One" at the VA's Huntington
   Medical Center; the second was submitted in response to IFB No.
   VA-249-07-IB-0107, for work on the Center's water reservoir and pump
   house.

   These protests involve a single issue--whether the VA's contracting
   officer (CO) reasonably rejected two bids submitted by a recently retired
   employee of the VA Medical Center. For these bids--as opposed to two other
   bids where the protester received awards--the CO concluded that the former
   employee's involvement with the same projects during his government
   service was too significant to permit award to his newly-formed company
   without creating the appearance of an impropriety. For the reasons set
   forth below, we agree.

   We deny the protests.

   BACKGROUND

   Both of these solicitations were issued by the VA on August 1, 2007.
   Twelve days earlier, on July 20, Mr. Kenneth Reynolds retired from his job
   at the VA's Huntington Medical Center, where he had worked for more than
   21 years. For the 15 years prior to his retirement, Mr. Reynolds had been
   employed as an engineering technician at the Medical Center, where, among
   other duties, he was identified as a Project Manager reporting to the
   Chief of the Facility and Plant Management Service (hereinafter, the
   "Facilities Chief"). Mr. Reynolds explains that he left his VA job "to
   pursue owning and operating an SDVOSB (small disabled-veteran-owned
   business) contracting company, KAR Contracting, LLC." Protester's
   Comments, Nov. 7, 2007, at 2.

   Bid opening for the roof replacement project (IFB -0085) took place on
   September 5; bid opening for the work on the water reservoir and pump
   house (IFB -0107) took place 2 days later, on September 7. On both
   projects, KAR was ultimately found to be the low bidder.[1]

   The CO explains that KAR submitted with both of its bids a copy of a
   letter to Mr. Reynolds from the VA Regional Counsel, dated July 20, which
   had been provided upon his retirement. The CO also states that Mr.
   Reynolds indicated that the letter "allowed him to bid on the VA [Medical
   Center] contracts." CO's Statement, Oct. 25, 2007, at 1.[2] The letter, in
   general, provides an explanation of the post-employment restrictions
   applicable to former government employees codified at 18 U.S.C.
   sect. 207.[3] AR, exh. 5.

   In light of concerns about whether the newly-founded company owned by
   Mr. Reynolds could appropriately perform these contracts--and given Mr.
   Reynolds' representation to the CO that the letter advised that it
   could--the CO contacted the Facilities Chief for advice. The Facilities
   Chief, who was Mr. Reynolds' supervisor at the time of Reynolds'
   retirement, was asked by the CO to certify that "Ken Reynolds would be
   eligible for award" of these projects. AR, exhs. 6 and 7. In response, the
   Facilities Chief advised the CO that Mr. Reynolds had been involved in
   both projects, and therefore he was seeking clarification from the VA's
   Office of Regional Counsel. On September 19, in a letter addressed to the
   Facilities Chief, a VA attorney provided a 3-page analysis of the
   situation with the following conclusion:

     Based on the foregoing, pursuant to either Section 207(a) or 207(b), it
     is my opinion that Mr. Reynolds is ineligible for any projects that were
     assigned to him while he was employed as an Engineering Technician at
     the Huntington VAMC.

   AR, exh. 8, at 3.[4]

   Upon receipt of this letter, the Facilities Chief prepared a statement for
   the CO advising that Mr. Reynolds (and KAR Contracting) was ineligible for
   award of either of these contracts. AR, exhs. 9 and 10. Two days later, in
   a letter to KAR, the CO advised

     We are unable to accept your bids on these two solicitations. Acceptance
     would violate post-Government employment restrictions as outlined in the
     enclosed Office of Regional Counsel . . . letter dated September 19,
     2007.

   AR, exh. 11, Letter from CO to KAR, at 1.

   These protests followed.

   DISCUSSION

   KAR argues that the CO abused her discretion when she excluded KAR's bids
   from consideration because her decision was based on faulty legal
   reasoning by the VA's attorney. In addition, KAR argues that agency
   officials are biased against him.

   The basic requirements and procedures for procurements conducted using
   sealed bids are set forth in the Federal Acquisition Regulation (FAR) at
   part 14. Within this scheme, subpart 14.404-2 governs the rejection of
   individual bids, and FAR sect. 14.402-2(h) requires the rejection of any
   bid received from a person or concern that has been suspended, debarred,
   proposed for debarment, or declared ineligible for award. The record here
   shows that, after consultation with counsel, the Facilities Chief provided
   the CO with a determination that KAR was ineligible for these awards.

   Once the agency concluded that KAR was ineligible for award, it rejected
   KAR's bids. While the analysis set forth below is drawn largely from cases
   involving negotiated procurements, the same rules apply to procurements
   conducted using sealed bids: an agency can reasonably reject a bid to
   avoid even the appearance of an impropriety. See Revet Env't & Analytical
   Labs., Inc., B-221002.2, B-221003.2, July 24, 1986, 86-2 CPD para. 102 at
   4.

   An agency's decision to exclude an offeror[5] from a competition in order
   to remedy a problem related to the integrity of a particular procurement
   requires a balancing of competing interests set forth in the FAR. On the
   one hand, contracting officers are granted wide latitude in their business
   judgments to safeguard the interests of the United States in its
   contractual relationships. FAR sect. 1.602-2; IGIT, Inc., B-271823, Aug.
   1, 1996, 96-2 CPD para. 51 at 3; Compliance Corp.--Recon., B-239252.3,
   Nov. 28, 1990, 90-2 CPD para. 435 at 4. On the other hand, the same
   section of the FAR requires contracting officers to ensure impartial,
   fair, and equitable treatment of all contractors. FAR sect. 1.602-2(b);
   KMPG Peat Marwick, B-251902.3, Nov. 8, 1993, 93-2 CPD para. 272 at 8,
   aff'd, Agency for Int'l Dev.; Dev. Alternatives, Inc.--Recon., B-251902.4,
   B-251902.5, Mar. 17, 1994, 94-1 CPD para. 201 at 7.

   It has long been the case that where there is an apparent conflict of
   interest, an agency may exclude an offeror from a procurement to protect
   the integrity of the federal procurement system, even if no actual
   impropriety can be shown, provided that the agency's determination is
   based on fact and not mere innuendo and suspicion. See, e.g., Lucent
   Techs. World Servs. Inc., B-295462, Mar. 2, 2005, 2005 CPD para. 55 at 10;
   Electronic Design, Inc., B-279662.5, May 25, 1999, 99-1 CPD para. 103
   at 6; IGIT, Inc., supra; KPMG Peat Marwick, supra; Compliance
   Corp.--Recon., supra; MDT Corp., B-236903, Jan. 22, 1990, 90-1 CPD
   para. 81 at 3. Holmes & Narver Servs., Inc./Morrison-Knudson Servs., Inc.,
   a joint venture; Pan Am World Servs., Inc., B-235906, B-235906.2, Oct. 26,
   1989, 89-2 CPD para. 379 at 8, aff'd, Brown Assocs. Mgmt. Servs.,
   Inc.--Recon., B-235906.3, Mar. 16, 1990, 90-1 CPD para. 299 at 3; Laser
   Power Techs., Inc., B-233369, B-233369.2, Mar. 13, 1989, 89-1 CPD
   para. 267 at 7.

   In those cases where an agency has decided to exclude an offeror (or
   bidder) from a competition, we will review the record to determine whether
   the agency had a reasonable basis for its decision in the face of an
   allegation, or indication, of an apparent conflict of interest or
   appearance of impropriety. See Lucent Techs. World Servs., Inc., supra;
   IGIT, supra; KPMG Peat Marwick, supra; Naddaf Int'l Trading Co.,
   B-238768.2, B-238768.3, Oct. 19, 1990, 90-2 CPD para. 316 at 5; Holmes &
   Narver, Inc., B-239469, Sept. 14, 1990, 90-2 CPD para. 210 at 10 (all
   involving an agency decision to exclude an offeror); see also Friends of
   the Waterfront, Inc., B-225378, Jan. 6, 1987, 87-1 CPD para. 16 at 2;
   Revet Env't & Analytical Labs., Inc., supra (involving an agency decision
   to exclude a bidder).

   During this protest, KAR has raised detailed challenges to the legal
   memorandum provided by the VA attorney, including assertions that certain
   portions of the analysis are flawed, and do not accurately interpret the
   regulations implementing this criminal statute. We need not take a
   position on KAR's challenges to the VA's analysis of a criminal statute to
   reach our conclusion here; 18 U.S.C. sect. 207 is a criminal statute whose
   interpretation and enforcement is a matter for the Department of Justice,
   not our Office. Science Pump Corp., B-255737, Mar. 25, 1994, 94-1 CPD
   para. 246 at 5 n.3.

   In our view, the restrictions of 18 U.S.C. sect. 207 do not set the outer
   boundaries for a CO's reasonable exercise of discretion about whether the
   award of a contract will create the appearance of impropriety.
   Specifically, even if KAR can argue that the facts here would not support
   a criminal conviction for violation of the post-employment restrictions,
   that would not mean there was no reasonable basis for concluding that KAR
   was ineligible for award.

   Our review of the record shows a CO, and other officials, questioning
   whether it was appropriate to award construction work for the Medical
   Center to a recently retired employee who had been listed as the CO's
   technical representative (COTR) on the very projects on which he was
   bidding. The record supports this concern: Mr. Reynolds was assigned as
   the COTR on both of these projects. As recently as June 7--just 3 months
   before he would be the low bidder for the water reservoir and pump house
   project--the project tracking log includes Mr. Reynolds' initials ("KR")
   on the log's indication that the project design had reached the 50 percent
   completion point. On the roof replacement project, where he was also the
   COTR, the project design had reached the 75 percent completion milestone.

   In addition to the listing as COTR, the VA officials noted that
   engineering technicians prepare drawings for various construction projects
   to be performed at the Medical Center. The concern about the appearance of
   a conflict created by this situation led the CO to inquire of the
   Facilities Chief whether award to KAR was appropriate. When the Facilities
   Chief was unsure, he sought advice from an agency attorney. While we
   recognize that the concern here was ultimately described as a concern that
   award to KAR would violate the post-employment restrictions applicable to
   former government employees, we think there is ample support in this
   record to conclude that the CO's actions here reflected concern about the
   appearance of an impropriety created by the award of these contracts to a
   recently retired employee's newly-formed company. Where we find support
   for such conclusions in the record, we are less concerned about whether
   the CO selected the correct legal label to describe those concerns than we
   are about whether the exercise of discretion was supported by the
   facts.[6] See Lucent Techs. World Servs. Inc., supra, at 4-9; cf. Battelle
   Mem. Inst., B-278673, Feb. 27, 1998, 98-1 CPD para. 107 at 6-8
   (recognizing that the FAR's organizational conflict of interest
   regulations, by their terms, do not apply to government officials, but
   looking to those regulations as instructive about the situations COs
   should take steps to avoid, neutralize, or mitigate).

   During this protest, KAR has argued that Mr. Reynolds did not prepare many
   of the drawings here (in some instances, KAR explains that Mr. Reynolds
   only copied drawings prepared years earlier), and KAR has submitted a
   statement from another engineer buttressing his assertions. As stated
   above, we think the record here supports the agency's conclusion that
   government employees involved in projects this close to design completion,
   and designated as technical participants in the upcoming procurement, can
   reasonably be excluded from competitions when they leave government
   service and, soon thereafter, attempt to win contracts for the same
   projects they worked on while in the government.[7]

   KAR pointed out during this protest that it had received two other awards
   from the VA's Huntington Medical Center since Mr. Reynolds' retirement. We
   asked the agency to explain its rationale for these other awards, given
   the position taken here.

   In response, the Facilities Chief submitted a sworn declaration explaining
   that the differing conclusions were due to a different level of
   involvement by Mr. Reynolds, as reflected in documents the agency calls
   "blue sheets." These so-called "blue sheets" listed the status of all
   approved construction projects for the Huntington VA Medical Center. In
   the two projects under challenge here, the agency explains that Mr.
   Reynolds was identified as the COTR, and the project design had reached,
   or passed, the 50 percent design completion point. While Mr. Reynolds was
   also listed as the COTR for one of the projects where he was allowed to
   receive an award--involving site preparation for R/F equipment--the design
   of the project was still listed as 0 percent completed because equipment
   plan drawings had not yet been received from the equipment vendor.
   Declaration of VA Medical Center Facilities Chief, Nov. 30, 2007, at 1-2.
   In our view, while Mr. Reynolds argues that the "blue sheets" are
   sometimes inaccurate, we think the agency could reasonably rely on these
   contemporaneously prepared worksheets to inform its decisions about which
   projects might be appropriate for award to KAR, and which projects might
   more appropriately be withheld.

   As a final matter, we turn to KAR's complaint that certain of the
   officials at the Huntington Medical Center are biased against him. We note
   that not only has KAR provided no evidence to support these claims, but
   the evidence provided by the agency supports a conclusion that these
   allegations are not credible. As stated above, where KAR was the low
   bidder on a project that had not proceeded very far towards completion of
   the design work, he received award. Where, as here, a decision to exclude
   a contractor is limited to a specific situation, and there is no
   indication that KAR will be ineligible for the award of contracts in the
   future, we are less concerned about allegations of ongoing bias. See,
   e.g., Naddaf Int'l Trading Co., B-238768, B-238768.2, Oct. 19, 1990, 90-2
   CPD para. 316 at 6.

   In short, the record here reflects that KAR's founder had a role in the
   development of the requirements for these projects, and that he held this
   role until shortly before issuance of the solicitations. When KAR then
   submitted the lowest responsive bids as of the bid openings on September 5
   and 7, the CO decided that KAR would not be eligible for these awards. On
   these facts--and in particular, the very brief time between the
   involvement of KAR's founder and bid opening--we conclude that the CO
   reasonably excluded KAR's bids for these projects.

   The protests are denied.

   Gary L. Kepplinger
   General Counsel

   ------------------------

   [1] For the roof replacement project five bids were received. The apparent
   low bid was rejected for reasons not relevant to this dispute (bid bond
   issues), and the bid submitted by KAR became the lowest responsive bid.
   For the water reservoir project, KAR submitted the only bid. Agency Report
   (AR), exhs. 3 & 4.

   [2] The CO's Statement, while signed, is undated, but was provided to our
   Office on October 25.

   [3] In broad terms, 18 U.S.C. sect. 207(a)(1) imposes criminal penalties
   on former government employees for representing "any other person" before
   a federal agency in connection with a "particular matter . . . in which
   the [former employee] participated personally and substantially . . . and
   [] which involved a specific party or specific parties at the time of such
   participation." In contrast, sect. 207(a)(2) imposes a 2-year bar under
   parallel facts for matters under a former employee's "official
   responsibility," during the final year of federal service (i.e., even
   where the employee was not personally and substantially involved).

   [4] Since the letter does not elsewhere mention or explain the application
   of sect. 207(b), we infer that the intended references were to
   sections 207(a)(1) and 207(a)(2), which were the subject of the analysis
   of the letter.

   [5] As stated above, since most recent decisions interpreting conflict of
   interest requirements have involved negotiated procurements, rather than
   procurements using sealed bids, we will describe those cases using the
   term offeror, rather than bidder.

   [6] Specifically, we reach our conclusion that the decision to exclude KAR
   was reasonable even accepting KAR's allegations that there were flaws in
   the legal analysis of the post employment restriction statute performed by
   the agency attorney.

   [7] With respect to his role as the COTR, KAR does not dispute that Mr.
   Reynolds had been listed as the COTR on these projects, but contends that
   he did not have official responsibility for them (because others did) and
   because the projects did not become "particular matters" under the rubric
   of 18 U.S.C. sect. 207 until release of the solicitations on August 1--12
   days after his retirement. As stated above, we will not parse the
   application of this criminal statute to this situation. We think the CO
   could reasonably conclude that Mr. Reynolds's involvement in preparing the
   design documents for these projects--even if he was supervised by others
   with more authority for the projects than him, and even if others did more
   of the design work than he did--created the appearance of an impropriety.
   We also recognize that at some point prior to the release of a
   solicitation, an agency must identify the people who will have technical
   responsibilities in the upcoming procurement.